What is Cash Flow Statement?
A statement showing flows of cash & cash equivalent during a specified time period is known as a Cash Flow Statement. The movement of cash & cash equivalents or inflow and outflow of cash is known as Cash Flow. Cash inflows are the transactions that result in an increase in cash & cash equivalents; whereas, cash outflows are the transactions that result in a reduction in cash & cash equivalents. Simply put, a cash flow statement is a summary of different sources and applications of cash during a specific time period and analyses the reasons behind changes in cash balance between the two balance sheet dates. (Here, ‘cash’ means cash & cash equivalent) Hence, one can prepare a cash flow statement if the two comparative balance sheets of a company are given. A cash flow statement includes only those items which affect cash. This is the reason why a cash flow statement is also known as Statement of Changes in Financial Position – Cash Basis, or a Funds Flow Statement – Cash Basis.
A cash flow statement can be prepared for the past or can project the future. The transactions of a cash flow statement are categorised into three activities; namely, Cash flow from Operating Activities, Cash flow from Investing Activities, and Cash flow from Financing Activities. The Institute of Chartered Accountants in India has issued Accounting Standard AS – 3 revised for the preparation of cash flow statements. Besides, with the introduction of the Companies Act 2013, the preparation of a Cash Flow Statement is now mandatory for every type of company except OPC (One Person Company) [Section 2(40)].
Table of Content
- Terminology used in Cash Flow Statement
- Cash Flow from Operating, Investing & Financing Activities
- Treatment of Special Items as per AS-3
- Cash Flow Statement – FAQs